Creating Jobs in Armenia

Submitted by Ulrich Bartsch
On Thu, 11/21/2013

Tim Richards, Mine Manager of the Amulsar Gold Mine explains the mine
lay-out to Chris Sheldon, Sector Manager of Mining at the World Bank.

Armenians love beach vacations. The problem is, their local options along the shore of Lake Sevan are not always good enough. Armenia being a landlocked country, reaching other beaches involves a long drive to the Georgian coast on the Black Sea, or at least two flights—one to reach Moscow or a European hub, and the next to get to an actual beach. The latter option has another snag: flying out of Armenia is expensive, and offers little flexibility when it comes to choosing routes and departure times.

Until recently, Armenia was not only landlocked, but also policy locked: a restrictive aviation policy limited options and increased prices for passengers and cargo coming in to or leaving Armenia’s Zvartnots airport outside of Yerevan, the capital. The government had granted exclusive rights to a private, Armenian-owned airline, Armavia, for ten years starting in 2003, and therefore restricted competition from foreign airlines. So, even a regular holiday sometimes started with a long road trip to Georgia’s capital Tbilisi to connect with cheaper flights there.

But things are looking up. The ten years of protection ended in March, and Armavia stopped its operations and relinquished its leased planes in April 2013. The Armenian government announced a new, liberal “open skies” aviation policy. Over time, Armenians can expect lower prices and better connectivity from their own Zvartnots airport, as the “open skies” foster more competition. Of course, better, cheaper flights for Armenians are not the only benefit here: open skies connect people and ideas, create jobs in the tourism sector, and open up new opportunities for trade in Armenia’s abundant horticultural products. Think delicious apricots grown in the clear mountain air.

More competition in the aviation sector is a step that must be followed by others. Key sectors of the Armenian economy are dominated by a limited number of firms. Indicators for Armenia for the intensity of local market competition, extent of market dominance, and effectiveness of competition policy lag other countries in the region. This clearly explains the lack of dynamism of the Armenian economy, leading to low employment and low incomes.

One company poised to profit from the new aviation policy operates Zvartnots airport. It built a big, gleaming terminal in 2011, and more recently added a state-of-the-art logistics center including cold storage, which will help greatly in shipping Armenian apricots to the world.

The man behind the new airport is Eduardo Eurnekian, owner of Corporacion America, which also operates airports in many other countries. He was born to Armenian immigrants in Argentina and belongs to Armenia’s vast Diaspora. There are others like him: wealthy individuals who feel connected to Armenia and invest or donate significant sums in a country they or their parents or even their grandparents called home. They have created high-tech businesses, set up educational foundations, and promoted tourism. But out of millions of Armenians abroad, they are just a handful. The Diaspora is Armenia’s underutilized resource, an opportunity waiting to happen, like major gold deposits under the arid mountain pastures of central Armenia. More than their money it is their expertise that could drive growth in Armenia.

In a recent report “Republic of Armenia: Accumulation, Competition, and Connectivity”, we highlight a combination of four factors that could drive economic growth and create dynamism in the economy:

First, higher investment and better financial intermediation is needed between savers and investors. Second, better utilization of the labor force, including the largely untapped resource of Armenians abroad. Third, stronger competitive pressures in the markets for goods and services will improve incentives for companies to innovate, adopt new technologies, and become more efficient. Fourth, better connections of the economy with world markets, including through land, air, and internet and communication technologies is critical.

The World Bank works with the government in these areas to build a new growth model for Armenia, one based on trade and openness. Hopefully, in the future many more Armenians can get to a beach easily.